FTX Seeks $244M Clawback Over Inflated Embed Acquisition Deal

Updated: 21 May 2023

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FTX lawyers seek a $243.7 million clawback from Embed insiders and executives, alleging overpayment for the stock-trading platform by former leadership.

FTX Pursues Legal Action to Recover $240M in Allegedly Overpriced Embed Acquisition

FTX’s current leadership is pursuing legal action to recover over $240 million from insiders and executives who allegedly benefited from the overpriced acquisition of stock-clearing platform Embed in September. According to a report by Cointelegraph on May 18, a lawsuit was filed on May 17 against former FTX CEO Sam Bankman-Fried and other top FTX insiders.

The lawsuit claims that the acquisition of Embed lacked sufficient due diligence. Simultaneously, another lawsuit was filed on the same day, seeking to reclaim funds from Embed CEO Michael Giles and its shareholders. This lawsuit alleges that FTX paid an excessively inflated price of $220 million for the stock-trading platform.

According to the official filing, FTX’s acquisition of Embed left Embed’s chief technology officer, Laurence Beal, astonished at the high price paid by FTX, especially considering the brief meeting with Giles. Beal expressed his surprise in a conversation with another senior employee at Embed, using a cowboy emoji to describe FTX’s due diligence process.

As part of the acquisition, FTX provided retention bonuses totaling $70 million to Embed’s employees. Most of this amount, $55 million, was given to Giles, who later became concerned about justifying this significant sum to the rest of the employees.

Giles’ Extraordinary Compensation and Clawback Proceedings

Between the day Giles signed the acquisition agreement on June 10, 2022, and the closing of the deal on September 30, 2022, he received an astonishing $490,000 per day, assuming he worked seven days a week. Furthermore, when the acquisition was completed, Giles was granted an additional $103 million because of his status as Embed’s largest shareholder.

Back at you @Brett_FTX @SBF_FTX @ramnikarora and team. Excited for @Embedded to join @FTX_Official https://t.co/LttYxEFR7L

— Michael Giles (@Harland) June 21, 2022

Giles, as Embed’s CEO, received his full retention bonus immediately. Other employees had to wait for two years to receive their full bonuses. FTX is seeking a clawback of $236.8 million from Giles and Embed executives. Embed’s smaller shareholders will also face a clawback of $6.9 million.

Lawyers accuse FTX insiders of exploiting inadequate controls and recordkeeping. They allegedly used misallocated funds for the Embed acquisition. FTX insiders were reportedly aware of FTX’s insolvency during the deal.

Chapter 11 bankruptcy for FTX was filed on November 11, 2022. The new leadership, led by John Ray III, aims to recover funds for customers and creditors. FTX lawyers are considering relaunching the exchange. A class action lawsuit against celebrities endorsing FTX is backed by former executive Daniel Friedberg, the ex-compliance chief.

FTX, once valued at $32 billion, filed for bankruptcy last November, customers withdrew funds as concerns arose and the missing funds were discovered. They linked mismanagement and risky investments to Alameda, the affiliated hedge fund. Founder Sam Bankman-Fried, formerly a crypto industry star, faces criminal charges. Former FTX and Alameda leaders have pleaded guilty. New management is investigating and trying to recover funds. The implications for over a million creditors are unclear.